Randgold Resources Ltd (RRS)

Chart of the week: Favourite trade keeps on giving

Randgold follows my script beautifully

This has been one of my favourite trading markets since I started writing COTW. Long-term readers will know that I have managed to anticipate many of the major waves both up and down - and the most recent one is no exception.

Last time I covered Randgold (RRS) was on May 8 when the market was in a down phase and I was tracking the minor waves down. I suggested that there was more downside to come before an A-B-C pattern that I had anticipated was finished. I suggested that after the C wave was in place, the market would start another rally phase.

This was the chart I was working with in early May:

The market had declined off my B wave high and had broken below T3 and had met the Fibonacci 50% support area at £66. I was looking for the C wave to finish below the A wave low, so the £66 level could be my C wave low. That was one of my two options.

The other possibility was for one more dip to the Fibonacci 62% level at £63. Those were my two clear options. Either one would imply a resumption of the rally after the C wave was done.

Now, when faced with this dilemma - shall I buy now or wait for a possible further decline to a lower target? - I have a simple plan. I like to buy one half of my intended position here and if the shares drop to the lower target, I would buy the other half there.

So let’s see how this panned out. Here is the updated chart

In fact, the market did start turning back up from that level. And one further clue that it might turn there was the fact that I had drawn in the T4 support line and that was added support to add to the Fibonacci 50% level. Remember, I draw these extra tramlines equidistant from the original pair.

So, the market staged a very sharp rally to the £77 level to match the old high back in March. Short-term traders would have captured a very tidy £11 (+15%) gain.

But what about the longer-term picture? Traders on this time scale would be holding as the main trend remains up.

So, with my half position I am not fully invested, but at least I have captured a profit and what is wrong about that?

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.